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on return-by-return data (rather than on aggregate industry data
on which this Court in its opinion in Texasgulf, Inc. & Subs.,
had focused) and affirmed this Court’s opinion. Noting that only
33 percent of the income tax returns showed nonrecoverable
expenses in excess of the processing allowance and that, of the
income tax returns that reflected OMT liability, only 16 percent
showed nonrecoverable expenses that exceeded the processing
allowance, the Court of Appeals concluded that the taxpayer had
met its burden of proving that under OMT the taxpayer was
effectively compensated for nonrecoverable costs.
In its opinion in Texasgulf, Inc. & Subs. v. Commissioner,
172 F.3d at 216, the Court of Appeals for the Second Circuit
expressly noted that, where available, quantitative and empirical
evidence relating to taxpayer and to industry experience in
calculating and paying foreign taxes is appropriate and relevant
in analyzing the net income requirement. The Court of Appeals
explained as follows:
the language of sec. 1.901-2--specifically,
“effectively compensate” and “approximates, or is
greater than”--suggests that quantitative empirical
evidence may be just as appropriate as qualitative
analytic evidence in determining whether a foreign tax
meets the net income requirement. * * * [Id.]
In Texasgulf, Inc. & Subs. v. Commissioner, 107 T.C. at 64-65,
70, we used similar language to describe the type of evidence
that may be used in evaluating the nature of foreign taxes for
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